MPA accounts for period ended 31 March 2001

Report: 7
Date: 4 October 2001
By: Treasurer

Summary

This report presents for approval the Authority’s first set of accounts (see Supporting material) for the nine month period to 31 March 2001, subject to audit.

A. Recommendations

The Committee is recommended:

1. to approve the final accounts for 2000/01 as presented, subject to audit, and following the scrutiny which has already been undertaken by the Audit Panel;

2. to delegate authority to the Treasurer to agree changes with the external auditor reporting back any material changes.

B. Supporting information

Introduction

1. At its meeting on 20 September 2001 the Authority agreed to delegate to the Finance Planning and Best Value Committee approval of the Final Accounts for 2000/01. The draft accounts have been scrutinised by the Audit Panel on 19 September and the accounts now presented reflect the Panel’s comments.

Context for the accounts

2. This report presents and comments on the Authority’s accounts for the period to 31 March 2001. These accounts are draft subject to audit. The MPA was established on 3 July 2000 and the accounts have accordingly been prepared for the nine months from 3 July 2000 to 31 March 2001.

3. The Accounts and Audit Regulations 1996 require the Authority (or a committee on its behalf) to approve the final accounts for the year ending 31 March by the following 30 September, prior to the external auditor providing his opinion. However the circumstances in which this first set of accounts of the MPA has been prepared are unique in a number of respects:

• It is the first published accounts of the Metropolitan Police produced on a local government accruals basis rather than the simpler cash basis.
• There is no closing balance sheet from the previous regime.
• The financial affairs of the Inner London Magistrates Courts Service (ILMCS) and the Inner London Probation Service (ILPS) have had to be separated from those of the MPS.
• The accounts are for a nine month period rather than the normal twelve months.

Furthermore, although steps have been taken to address the issue, the existing skills and knowledge in the MPS Finance Department are more appropriate to cash accounting than the complexities of accrual accounting. Although the accounts will be approved on 4 October, four days after the due date, they will have been published and circulated by 30 September so that the deadline has been substantially achieved. The Audit Panel has endorsed my view that in the circumstances this is a very good achievement by the MPS Finance Department.

4. The accounts are compiled and presented in accordance with the latest Statement of Recommended Practice - the Accounting Code of Practice issued by the Chartered Institute of Public Finance and Accountancy (CIPFA). This Code has statutory force as representing proper accounting practice.

Format of the statement of accounts

5. The Statement of Accounts includes not only the revenue account and balance sheet for the Authority but also a series of explanatory statements and notes with the intention that all the relevant information is thereby provided for the purposes of understanding the accounts. The following paragraphs briefly summarise the format and principal contents so as to provide signposts for members in reading the accounts.

Foreword

6. The Foreword provides an introduction and should highlight the most significant matters reported in the accounts. It summarises the year’s expenditure against budget and the consequent effect on the Authority’s reserves. This information has been reported to the Committee previously.

Statement of Responsibilities

7. Members will note the responsibilities of the Authority itself set out here. This is also where my signature as Treasurer appears to indicate that I have discharged my responsibilities. Given the weaknesses in the financial systems and controls which have been reported to the Authority I cannot give an absolute assurance as to the accuracy of the accounts. However I am satisfied that appropriate steps have been taken with the resources available to ensure that the accounts are of sufficient quality for me to recommend them for approval. In the final published accounts the auditor’s opinion will follow at this stage in the statements. I expect his opinion to contain some qualifications and I cannot rule out the need to make changes to the accounts presented as a result of the audit. The auditor will only require changes to the figures which he regards as material to the overall financial position presented. It is quite likely that we will agree amendments to the wording of the policies and disclosures as the audit proceeds.

Accounting policies

8. This section sets out the significant accounting policies upon which the accounts have been based. The policies comply with the CIPFA Code of Practice except where explicitly stated. For example it is not possible to provide for insurable risks on an accruals basis because information on claims against the MPS has previously been held on a cash basis only and it will take a period of years before claims information will have been built up in a way that can support the appropriate estimation of current liabilities. It is also pointed out that policies in relation to pensions reserves remain subject to review. These are matters which will undoubtedly be raised by the external auditor and will require further consideration by the Authority in due course.

9. The accounts comply with the capital accounting requirements of the Code of Practice. These serve two broad purposes:

• To ensure that fixed assets are shown in the balance sheet at current value. This therefore involves periodic revaluation of long term assets, ie land and buildings, and writing down the value of assets to reflect depreciation.
• To ensure a consistent charge to revenue account for the use of assets. Capital charges in the revenue account therefore comprise depreciation and notional interest on the capital tied up in assets.

However the accounting entries required to achieve these objectives do not represent cash transactions and in order to ensure that the ‘bottom line’ of the accounts reflects the net expenditure financed by grant and council tax, a series of reversal entries are made involving a set of accounting reserves which appear in the balance sheet.

Summary revenue account and notes

10. The revenue account reflects the outturn position previously reported to the Committee. The figures in the accounts represent nine months expenditure and income only whereas the budget for 2000/01 has been monitored over a twelve month period. However the deficit for the period shown in the revenue account (£7.909 million) is the overspending as reported to Committee.

11. The notes to the revenue account provide explanatory information and meet particular disclosure requirements, for example in relation to levels of remuneration and material transactions with related parties.

Balance sheet and notes

12. The balance sheet shows the value of the fixed assets and net current assets, the amount of long term indebtedness and the reserves at the Authority’s disposal. The notes are essentially explanatory.

13. A provisional opening balance sheet as at 3 July 2000 was presented to the Committee in November 2000. There is one significant change in the opening position now reported. A more accurate allocation of assets and liabilities as between the MPS, ILMCS and ILPS has resulted in an increase in the reported net position of the MPS which is reflected in an improvement of £1.368 million in the Authority’s general reserve.

14. Total usable reserves are reported at £92.2 million on the balance sheet. However of these £65.5 million comprises capital receipts and capital grant which cannot be applied to revenue purposes. Available revenue reserves therefore amount to just £26.7 million. Detail is contained in the statement of total movement in reserves which follows on from the notes to the balance sheet. £5.2 million of the earmarked reserves is likely to be consumed in the near future. The remaining £21.5 million comprises a nominal amount of £8 million towards substantial potential police pensions liabilities and a general reserve representing just 0.7% of net expenditure. This is quite inadequate for this organisation with its potential future liabilities and the level of risk surrounding its current expenditure and funding.

Next steps

15. The Committee is asked to approve the accounts as presented. The audit is now underway. The external auditor is planning to provide his management letter to the Authority by December 2001 and should be publishing his opinion on the accounts in the same timescale. This Committee will have to review financial policies in the light of the auditor’s views.

C. Financial implications

None other than referred to above.

D. Background papers

• MPS Accounts Close-down Files

E. Contact details

Report author: Peter Martin, Treasurer, MPA.

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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